Friday, April 07, 2006
Some things that have changed since the 70s
OK, for fun, lets make a list of things that were different then vs. now, even if it’s only a sample of 2 time periods. My memory in the late 70’s is somewhat vague as I was attending college in California. I’ve got three:
1. Commodity price inflation was driven by increasing wages (too many dollars), now it’s driven purely global demand, US consumerism (borrowed dollars and housing ATM) and global liquidity (exported US dollars in return for imported foreign trinkets).
2. Real estate inflation (appreciation) was driven by higher wages and the desire of high income taxpayers to shelter ordinary income (pre 1986 Tax Reform Act) from high tax rates (20-35% higher than today’s top rates). The rent to value ratio had to make some sense. Short term speculators/flippers weren’t as common then. Today, RE prices have been driven by record low interest rates, easy qualifying and credit terms and record breaking speculation. Much of the run-up was a result of drastic measures taken by the Fed to keep the economy from collapsing after 9/11.
3. In 1982, gold shot to $850 toward the tail-end of that mania, and was driven by geo-political concerns, as well as fear/heard mentality as a result of inflation, and scarcity. Gold investors had to either take possession or trust an unlicensed broker for storage. I recall some brokers had some issues with accounting. Today, gold is driven by uncertainty regarding the true value of national currencies and the US dollar in particular, a US/Global debt bubble as a result of record low interest rates, and finally, maybe most important, an easy way to buy via the ETF’s. Gold is still “off the radar” for most investors and speculators, and I don’t think there has been anything remotely resembling a herd mentality rush to buy, yet.
Correct me if I’m wrong or elaborate. Your turn to add to the list.. On a side note, one of the things that has stuck with me after 9/11 is that our economy and our nation are quite a bit more fragile than I would like to believe. We’re further weakened as a result of war in Iraq and as a result of taking a few hurricanes in our soft gulf coast underbelly.
